Export PricingChapter 11

Leanne MulhollandNguyen Vo

Zhouyang Lu

Only part of the marketing mix that is revenue generating

Can help organization gain market share Established by:

◦ Demand◦ Competition◦ Costs◦ Legal consideration

Credit terms

Price Dynamics

Pricing Situation

International Involvement

ExportingForeign-Market

PricingIntracompany

Pricing

First Time Pricing

Changing Pricing

Multiple-Product Pricing

International Pricing Situation 11.1

Production Cost Standard

Cost Plus

Marginal Cost

Materials 2.00 2.00 2.00

Fixed Costs 1.00 1.00 0.00

Addl foreign product costs 0.00 .10 .10

Production Overhead .50 .50 0.00

Total Production Cost 3.5 3.60 2.10

US Marketing Price 1.50 0.00 0.00

General & Administration .75 .75 0.00

Foreign Marketing 0.00 1.00 1.00

Other Foreign Costs 0.00 1.25 1.25

Subtotal 5.75 6.60 4.35

Profit Margin (25%) 1.44 1.65 1.09

Selling Price 7.19 8.25 5.44

Export Pricing Alternatives Exhibit 11.3

The cost of modifying the product for foreign markets

Operational costs of the export operation Costs incurred in entering the foreign

markets

Export Related Costs(Price Escalation)

Distribution Adjustment to Decrease Price Escalation

E Terms F Terms C Terms D Terms

Terms of Sale

The amount of payment and the need for protection

Terms offered by competitors Practices in the industry Capacity for financing international

transactions Relative strength of the parties involved

Terms of Payment

Methods of Payments for ExportersExhibit 11.7

Commercial risk: refers to the insolvency of, or protracted payment default by, an overseas buyer.

Noncommercial risk/ political risk: completely beyond the control of either the buyer or the seller.

Getting Paid for Exports

1. Credit reports may not be reliable.2. Audited reports may not be available.3. Financial reports may have been prepared

according to a different format.4. Many governments require that assets be

annually reevaluated upward, which can distort results.

5. Statements are in local currency.6. The buyer may have the financial resources in

local currency buy may be precluded from converting to dollars because of exchange controls and other government actions.

Factors Associated with Risks

Risk shiftingForward exchange market – exporter gets a

bank to agree to a rate at which it will buy the foreign currency after payment

Option – gives the holder the right to buy or sell foreign currency at a prespecified price on or up to a prespecified date

Futures – conceptually similar to the forward exchange market, but in smaller amounts

Managing Foreign Exchange Risk

Risk modifyingPass-through - export price decreases in

conjunction with increases in the value of import currency to maintain stable prices

Absorption – increase in the exchange rate price is absorbed into margin, possibly resulting in loss

Pass through only a portion of increase to customer

Managing Foreign Exchange Risk

Market refocus.

Streamlined operations.

Shift in production.

Managing Foreign Exchange Risk Beyond Price Manipulation

Commercial banks Forfaiting Factoring Official trade finance

Sources of Export Financing

The most sensitive issue Some concessions as in importers’ hopes Some tips for exporters Emphasize quality and reliability of delivery

Price Negotiations

Making a $220 billion industry. Potential source of hard currency Cases in which leasing can be used

Customers reluctant to buy unfamiliar products.Balance-of-payment problemsShortage of trained personnel and spare parts in

developing countries

Leasing

Definition: selling goods overseas for less than in the exporter’s home marketat a price below the cost of production

2 kinds:predatory dumpingunintentional dumping

Antidumping dutiesCountervailing duties

Dumping suits have strong competitive motivations in some cases.

Minimize the risk of being accused of dumping.

Dumping

Questions?